Common Interest Privilege in an Insurance Context

In brief - Although there are practical realities that can make it difficult to retain Common Interest Privilege, we outline some useful steps to consider if a claim for privilege is intended. 

General principles

Common Interest Privilege provides an exception to the general rule that if privileged documents are disclosed to a third party then privilege over those documents is waived. The disclosure of confidential lawyer-client communications to a third party does not constitute a waiver of legal professional privilege if the third party and the person who discloses the document have a common interest in the documents.

Legal professional privilege can be claimed over:

• confidential communications between a lawyer and their client, or
• for confidential documents that have been prepared for the purposes of obtaining or providing legal advice for:
  • proceedings that have already been commenced, or
  • proceedings that are anticipated.

Common Interest Privilege is recognised by section 122(5) of the Evidence Act 1995 (NSW) and (Cth). The privilege is not waived by:

… disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to a proceeding or an anticipated or pending proceeding in an Australian Court or a foreign court.

The Common Interest Privilege exception provided for by the Evidence Acts requires legal proceedings to have commenced or be anticipated for the privilege to be claimed.

Determining if Common Interest Privilege exists

For Common Interest Privilege to exist, the communications must be privileged in the first place.

In determining whether Common Interest Privilege exists, courts will consider whether a sufficient interest between the parties can be identified (Ampolex Ltd v Professional Trustee Co (Canberra) Limited (1995) 37 NSWLR 405 at 410). Australian Courts have refused to exhaustively define the circumstances in which a common interest will be seen to exist and there is no rigid definition as to what constitutes an identity of interest, rather is a question of the facts of each case (Network Ten v Capital Television (1995) 36 NSWLR 275 at 280).

Common Interest Privilege will not exist where the respective interests of the client and the third party are selfish and potentially adverse to one another (Ampolex ltd v Perpetual Trustee Co at 409-10).

The insurance context

In the insurance context, Common Interest Privilege is often claimed where the insurer instructs panel solicitors and, in obtaining information to defend the proceedings brought against an insured, the solicitors obtain information that is then passed to the insurer. In these circumstances, it is possible to claim Common Interest Privilege over those confidential communications and documents between the insured and the solicitors.

In circumstances where the solicitors are directly instructed by the insured and no claim for indemnity is made in respect of the claim, legal professional privilege attaches to the insured and there is no "common interest" between the insured and the insurer. Any disclosure to the insurer of those communications may be classified as a waiver of privilege.

For Common Interest Privilege to arise, there must be a sufficient common interest between the insured and insurer at the time that the communication or document is disclosed (Rich v Harrington (2007) FCA 1987).

Common Interest Privilege will continue to apply only where the interests of the parties continue to be aligned. Where the interests of the parties become adverse to one another (for example, where coverage has been declined), neither the insured nor the insurer will be able to maintain a claim for Common Interest Privilege over any communications that pass between them (whether via solicitors or not) following that time. Common Interest Privilege can, however, continue to be claimed over those communications and documents disclosed while the parties had a common interest.

Ultimately, the courts have made it clear that Common Interest Privilege will turn on the facts of each case, however, the courts continue to take a strict approach on the question of privilege.

Of particular interest is the case of Bulk Materials (Coal Handling) Services Pty Limited v Coal & Allied Operations Pty Limited (1988) 13 NSWLR 689. In that case, the Plaintiff (the Insured) notified its insurer of the possibility of a claim. The Insurer’s agent instructed solicitors to advise it. Solicitors recommended the Insurer agent obtain a report from an expert. The Insurer’s agent on behalf of the Insurer instructed a loss assessor to prepare a report for submission to solicitors. The Insurer’s agent gave certain pages of the report to the Insured’s broker. This was done prior to a decision on indemnity, although it was likely that indemnity would be granted.

The question was whether privilege was waived in relation to the pages provided to the Insured’s Broker. Giles J held:

The plaintiff submits that the underwriters and the plaintiff had a common interest. While underwriters had not, at the time the copied pages were provided to the plaintiff, decided whether or not to extend indemnity to the plaintiff, there was a likelihood that they would do so, and certainly they had not declined to provide indemnity. They therefore had an interest in seeing the best defence put forward by the plaintiff to the cross claim made against it by the defendant, and an interest in enabling the plaintiff to put forward in a timely manner the best cross claim against consultants involved in the project. They had an interest in the most advantageous conduct by the plaintiff of the proceedings then on foot. They had those interests even prior to a decision to afford indemnity, because upon making such a decision they would become subject to the consequences of the steps earlier taken in the conduct of the litigation. Their interests in these respects were identical with those of the plaintiff.

His Honour found that "these circumstances are apt for the application of a Common Interest Privilege … . The communication … was made in the furtherance of a common interest of underwriters and the plaintiff."

His Honour also held that whilst the retention of a common solicitor may be a factor and in some circumstances a significant factor in the existence of the common interest, it was not an essential element if the common interest is found elsewhere.

More recently, Giles J commenced in the decision in Network Ten Limited v Capital Television Holdings that:

"In Harbour Inn Seafoods Ltd v Switzerland General Insurance Co Ltd (1990) 2 NZLR 381, in which it was held that disclosure to an insured's broker was not a waiver, it was said that when confined to a particular non-party disclosure did not necessarily constitute waiver of privilege, that disclosure by a plaintiff to an associate or confidant unconnected with the proceedings of written legal advice on a claim against a defendant in ordinary circumstances would not and should not constitute a waiver as against the defendant, and that the restricted nature of the disclosure to the broker was not an effective disclosure to any other person and did not operate as a waiver."

Steps to protect Common Interest Privilege

Although there are practical realities that can make it difficult to retain Common Interest Privilege, the following are useful steps to consider if a claim for privilege is intended.

1. Use the same solicitors

2. Keep legal advice separate to other matters, such as those conducted in the usual course of an insurance business

3. Do not refer to legal advice in documents over which privilege cannot be claimed

4. Mark privileged documents as privileged

5. Obtain a confidentiality undertaking from the recipient of privileged communications to ensure that no argument can be raised that they did not have a duty to keep the document confidential.

In circumstances where there is doubt about the common interest of the recipient of a document, it is best to err on the side of caution and not provide the document. If it is necessary to do so, however, the above steps should be followed prior to disclosure.